Washington Insider-- Monday

Trade, Politics and Polls

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

China Downplaying Agreement to Stop Using Some Export Subsidies

The agreement by China to stop using some export subsidies announced April 14 by the Office of the U.S. Trade Representative (USTR) is being downplayed by China.

The U.S. and China signed an agreement terminating Chinese export subsidies provided through the “Demonstration Bases-Common Service Platform” Program. The U.S. filed a WTO complaint over the program and the two sides reached agreement where China will effectively terminate the challenged program which had provided export-contingent subsidies to Chinese enterprises across seven economic sectors, and dozens of sub-sectors, located in more than 179 industrial clusters. China has terminated the “Common Service Platform” subsidies to “Demonstration Base” enterprises and will remove export-contingent criteria from the “Demonstration Bases."

USTR indicated the program had provided some $1 billion in subsidies over three years to Chinese companies in several areas, include textiles, light industry, specialty chemicals, medical products, hardware, agriculture and advanced materials and metals, including specialty steel and aluminum products. Agriculture products involved included apples, beef, mushrooms, pork, tea, tomatoes, beans, ginseng, poultry, seaweed and garlic, the USTR said.

While steel has been at the center of some of the most contentious US-China disputes, reports indicate that Chinese experts don't see the agreement impacting that sector to a great deal. That view is due to the fact the export program focused mostly on specialty steel.

Tu Xinquan, a WTO expert at the University of International Business and Economics in Beijing, said it was not a big concession for Beijing, and officials in Washington may have "exaggerated their success," according to a Reuters report. "It was a very small amount of money. The use of such projects was marginal," Tu said.

And even US Trade Representative Michael Froman April 12 criticized China on their steel industry. "With an explosion of steel-making capability over the past 15 years, China is now home to half the global supply of steel and the principal source of the world’s overcapacity," Froman said.

Western Water Interests Raise Drought, Regulatory Concerns

The need for administrative and regulatory reforms in water-related issues was voiced by western U.S. water attorneys, water agencies, irrigation districts and others during an Apr. 13 hearing by the House Natural Resources Subcommittee on Water, Power, and Oceans.

Water attorneys decried the regulatory burden. "Unnecessary regulation makes supplying the water we all depend on more difficult, and in some instances, can prevent the development or maintenance of vital water infrastructure," attorney Lawrence E. Martin of the Halverson Northwest Law Group in Yakima, Wash., testified.

The Environmental Protection Agency's (EPA) Waters of the U.S. (WOTUS) rule was a primary concern voiced by those representing water interests. "This jurisdictional creep has been to the detriment of local communities and water users who rely on the efficient delivery of water for crops, jobs, and the health of our economy," Martin said.

Western water users have to contend with "a conflicting web of federal regulations and bureaucracy that add costs to ratepayer's bills and help perpetuate drought," Subcommittee Chair Rep. John Fleming, R-Fla., said.

Low water allocations, such as those seen in parts of Northern and Central California, were also cited as major issues facing water users. Rather than reducing allocations to protect species like the Delta smelt, "the solution is increasing yield by building local projects," potentially with federal financing, Andrew Fecko, director of resource development in the Placer County Water Agency testified.

A proposal was made to encourage the use of title transfers to spur greater development of water resources. Such transfers allow federal water projects to be handed over for local management, which would allow local users to be "empowered and [give them an] opportunity to run a more efficient operation," Jeremy Sorensen, general manager of the Strawberry Water Users Association noted.


Washington Insider: Trade, Politics and Polls

The world of U.S. trade policy has always been complex and now seems even more opaque than ever. The Hill reported recently that 225 food and ag leaders wrote to Congress pushing it to “move forward on the 12-nation Trans-Pacific Partnership before President Obama leaves office.” The letter argued that the deal would “increase U.S. competitiveness in the rapidly growing Asia-Pacific market."

The writers also see the proposed deal as helping the United States to lead in establishing “market-driven and science-based terms of trade that will directly benefit the U.S. food and agriculture industry in our efforts to compete and thrive in this important economic region," Tracy Brunner, president of the National Cattlemen's Association told The Hill.

Brunner said that cattle producers cannot wait any longer to level the playing field, especially with a deal in place between Japan and Australia that puts U.S. producers at a disadvantage, facing a tariff 11 percent higher than Australian beef.

The letter highlighted an analysis by the Peterson Institute for International Economics that said that delaying the launch of TPP by even a year would represent a $94 billion permanent loss, or opportunity cost, to the US economy.

The TPP also is estimated to boost annual net farm income in the United States by $4.4 billion, according to the American Farm Bureau Federation.

While the position of most farm groups is highly supportive of the Pacific deal, most politicians on both sides of the aisle in this year’s Presidential primaries do not agree--and the press has carried a barrage of negative trade commentary in recent months. However, in an interesting side note, the Associated Press recently reported a poll that said that most Americans prefer lower prices rather than paying a premium for items labeled "Made in the USA," even if it means those cheaper items are made abroad.

The preferences significantly reflect economic concerns, the AP noted. It thinks that slow income growth has forced many households to look for the most convenient bargains instead of goods made in America. In addition, it notes that many US employees work at companies with clients worldwide and see themselves as part of a global market.

Nearly three in four respondents say they would like to buy goods manufactured inside the United States, the AP said, “but those items are often too costly or difficult to find.” A mere 9% say they only buy American.

Asked about a real world example of choosing between $50 pants made in another country or an $85 pair made in the United States—one retailer sells two such pairs made with the same fabric and design — 67% say they'd buy the cheaper pair. This choice was even true for families in households earning more than $100,000 a year, who are no less likely than lower-income Americans to say they'd go for the lower price, the AP notes.

"Low prices are a positive for U.S. consumers.” They stretch budgets and allow people to save for their retirements, if they're wise, with dollars that would otherwise be spent on day-to-day living," Sonya Grob, 57, a middle school secretary from Norman, Oklahoma told the AP. She described herself as a "liberal Democrat."

Still, voters are divided as to whether free trade agreements hurt job creation and incomes the AP says. While Americans are slightly more likely to say free trade agreements are positive for the economy overall than negative, at the same time some 37% are skeptical that the deals make any difference.

And, in spite of the fact that Republicans have traditionally supported trade, they now are more likely than Democrats to say free trade agreements are bad for the economy.

So, it is not clear what all this means for the economic future. It is clear that the businesses whose markets are on the line--like agriculture--favor trade, especially unhindered access to the rapid growth areas of the world.

It also is true that many, many consumers appreciate markets where competition is strong and prices affordable rather than artificially protected.

The issue then is how to provide safety nets for the workers whose jobs face overseas competition from lower wage labor, as well as from technology. If workers are confident they will receive help if other enjoy trade benefits, support for trade deals likely will grow. If not, they likely will view overseas markets negatively as is done now is in many quarters, Washington Insider believes.

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